Daily analysis 01.06.2017

1 Jun 2017 12:09|Marcin Lipka

The forthcoming macroeconomic data may appear essential for the dollar. New surveys from the United Kingdom have increased the uncertainty before next week’s election. The zloty’s value decreased due to the worse than expected PMI from Poland, but the potential strengthening of the dollar can be a more significant threat for the Polish currency.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.00: Testimony from Jerome Powell.
  • 14.15: The ADP report about the employment rate in the US private sector for May (estimates: 180k).
  • 14.30: Weekly jobless claims from the USA (estimates: 238k).
  • 16.00: The US industrial ISM (estimates: 54.7 points).

Essential time for dollar

The entire US market still doesn’t believe that the Federal Reserve will sustain the monetary tightening at the pace of approximately three hikes per year over the next two years. Currently, investors estimate there will be two more hikes by 25 base case points over the next five quarters, including one this month. However, the Fed is likely to suggest moves at the level of approximately 100 base case points in that period.

When will the market come to terms that the chances for further rate hikes are fairly high? Perhaps, a certain breakthrough will happen this week due to the macroeconomic data. However, investors have been ignoring the statements from the Fed members so far. Yesterday, Robert Kaplan said that in spite of the uncertainty regarding inflation growth, he’s still in favour of two hikes this year. John Williams suggested that three hikes (including the one in March) makes sense and so would four hikes, as long as the economy is strong.

It’s also possible that investors are waiting for a stronger impulse, such as the forthcoming macroeconomic data. The positive ADP readings or a fairly high ISM may be a good foundation of a positive sentiment towards the dollar before tomorrow’s data from the Labour Department.

Jerome Powell will make his testimony today at 14.00. He will mainly focus on the monetary policy. If he appears to be in favour of sustaining the current rate hikes policy, this should contribute to the dollar’s strengthening.

Therefore, assuming that the macro data will not be worse than estimated, the conditions for the dollar’s strengthening are fairly high.

British elections

YouGov published the methodology they use for their surveys. It appears that surveys are carried out constantly (approximately 7000 each day) and the published data consists of statements from approximately 50 000 people from each of the 650 constituencies in the United Kingdom.

This means that the YouGov survey from Wednesday was updated by approximately 7 000 people and it still shows that the Conservative Party may not have the majority in the House of Commons. In addition, YouGov carried out a traditional survey for The Times, which showed that the Tories’ advantage over the Labour Party is at the level of 3 percentage points. This is the worst result of the Conservative Party in approximately one year.

However, the Kantar Public survey shows that the Tories have 10 percentage points of advantage over the Labour Party. Moreover, their support increased by 2% compared to the previous week.

Zloty went down

Since the morning, the zloty has been losing against the main currencies. This was partially caused by negative readings of Poland’s industrial PMI (52.7 vs 54.5). In Hungary, the industrial PMI increased from 56.2 to 62.1, which is its best result since 2003. As a result, the PLN/HUF went down from 73.70 to 73.50.

Nevertheless, some components of the Polish PMI were fairly favourable. According to IHS Markit, the production growth was solid and there was a significant increase in export. However, the employment growth was the lowest in seven months. In spite of all this, the potential strengthening of the dollar can be a more significant threat for the zloty. If the American currency gains value until the end of the week, this may cause the EUR/PLN to reach the area of 4.20.


1 Jun 2017 12:09|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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